Alpha G Corp Interview,S K Sayal Says `The Market Is Softening And Weaker Players Are Exiting'
By Gaurav12sep, Section Gurgaon Real Estate
Posted on Mon Nov 05, 2007 at 03:09:02 AM EST
Alpha G Corp is currently developing 30 million sq ft at eight locations. One of the earlier developers to attract private equity funding -- Rs 300 crore in July 2006 from Morgan Stanley Real Estate -- the company has been in rapid growth mode since. In this interview with Our correspondent, S K Sayal, CEO, Alpha G Corp, discusses the softening market, ways and means for developing mass housing, and the imminent oversupply in the office segment.
Is this is a good time for developers to expand?
With the market softening, landlords are now demanding more realistic prices for land. Also, second-rate developers are exiting the market and their land will become available at attractive rates.
How is the price of residential real estate moving?
Price movements are location specific. In Gurgaon, the market has definitely softened. Price movements also depend on the market segment. The luxury segment, for instance, which comprises apartments priced at above Rs 1 crore, is oversupplied. A lot of investors had entered this segment thinking they would be able to exit after paying three or four installments. But now that the market has softened, they are unable to exit.
Which is the segment where demand remains strong?
Besides the economically weaker section, which is very large, in the middle-income segment you have a lot of demand provided the price is right. This segment consists of apartments priced between Rs 15 and 25 lakh. Even in today's scenario, if you launch apartments within this price range in Gurgaon, people will queue up to buy them.
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But given today's land prices, is it feasible to launch apartments within this range?
It is difficult. Therefore, in my view, if the government wants private developers to cater to this segment, it will have to develop mechanisms for making land available to private developers at subsidised rates.
Are there any examples of this?
Yes, this model has been successfully practised in West Bengal. The government provides the land and it stipulates that the developer must develop housing that reflects the income profile of the state, i.e., the percentage allocation made to EWS, LIG and MIG categories must be in the same proportion as the strength of these categories in the state's population. The houses in the EWS category are sold at government-mandated prices. In return, the government offers incentives such as waiver of land conversion fee. What remains after EWS and LIG categories, the developer is free to exploit commercially.
What has been the impact of high home loan rates on the residential market?
Over the last year, with home loan rates rising high, the rate of transactions had slowed down. But now, with players like SBI reducing their interest rates, and with the expectation that interest rates will slide by another 1.5-2 per cent, demand is expected to firm up again.
What we saw recently was excess buoyancy because of foreign funds entering the market. They brought in excess liquidity, which resulted in deals happening at unrealistic prices.
How much retail space are you developing?
We are developing about one million sq ft each in Amritsar, Ahmedabad, Meerut, and Karnal. Wherever we are developing projects in the city centre, as in Ahmedabad and Amritsar, we are coming up with mixed-use developments that include retail, office, entertainment, hotel and service apartments.
How would you describe the market in the last six months??
Usually, when the market starts softening, first the transactions stop. Then, for a while, investors hold on to their assets. Only when they see that the market isn't reviving do they start selling at whatever prices buyers are available. These last six months have been a wait and watch period. Investors expected that the market would revive during the Navratras, but that hasn't happened. But economic fundamentals remain strong. So better developers' projects will sell, and the market in future will be more end-user driven.
Almost 75 per cent of demand for office space comes from the IT-ITeS, which is being affected by the appreciation of the rupee. Is this beginning to affect the demand for office space?
The office segment is going to be affected by three factors. One is oversupply: in the NCR alone nearly 50 million sq ft is under construction. Two, the appreciating rupee is beginning to affect the expansion plans of IT-ITeS players. And three, with so much IT-ITeS specific SEZs being developed, companies will prefer to take up space within these SEZs. This will create pressure on IT-ITeS space outside SEZs.
Source:ExpressEstates.in,05 Nov,07
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